Outsource HR, Save Money

HR business process outsourcing (BPO) can save you a lot of money -- try $1 billion or more; how to proceed.

The human resources (HR) function, while a central part of the enterprise, is also a cost center whose outsourcing can bring benefits that scale with the size of a company, notes new research from Yankee Group.

The research advances the case for HR business process outsourcing (BPO), which can be broken up into three parts: volume processing services (think payroll, benefits, recruitment, training, etc.), consulting services (including HR transformation, compliance, and expertise management), and BPO services (which incorporates much of the first two functions while adding business process transformation, employee portal management, and other higher value-added services).

Volume processing is the most popular segment of HR BPO, simply because it is the easiest. Engaging in consulting and services requires firing a partner who can both understand and transform your enterprise's HR complexity, which is a harder proposition than finding someone to handle the simpler issues around volume processing.

However, tacking HR BPO at the highest level provides unmistakable rewards, with Yankee Group analyst Phil Fersht noting that an enterprise with 20,000 employees could save $1 billion. This figure derives from a model in which an HR BPO partner could reduce workforce costs by 15 percent and increase revenue by 5 percent, and it scales by company size.

It's this kind of proposition that is driving a lot of business for HR BPO pure-plays like Hewitt and Aon as well as for larger outsourcing companies like IBM and Accenture.

Of course, the more complex your existing HR processes, the more you stand to save; an enterprise lucky enough to have an extremely efficient and dialed in HR organization would save less, although it could still save something in the realm of volume processing.